Turnbull leaves door open to break up NBN Co

Communications Minister Malcolm Turnbull is revisiting well-trodden telecommunications competition issues. Gary Schafer/AAP

Communications Minister Malcolm Turnbull has not ruled out a proposal by the expert panel reviewing the telecommunications industry to break up and sell off parts of NBN Co.

However Mr Turnbull, responding to the final report of the panel to the government, said that while disaggregation of NBN Co’s business units after the network was complete could not be ruled out, “now is not the time”.

“Breaking up NBN Co would distract its management and delay the provision of high-speed broadband to all Australians,” Mr Turnbull said in a statement.

He added that implementing many of the panel’s NBN recommendations would result in “large losses for taxpayers and the Budget”.

But the government will consider a recommendation by the panel, led by Dr Michael Vertigan, to replace the Australian Competition and Consumer Commission as the body responsible for overseeing pricing of access to telecommunications networks with a new “networks regulator”. This recommendation is in line with the draft report of the competition policy review released by Professor Ian Harper last week.

The panel’s final report, which includes the controversial cost-benefit analysis released in August, makes 19 recommendations, many arguing the case for less regulation and more competition in the sector.

It has suggested NBN Co’s transit, satellite and fixed network business units be separated and sold off. If this were to occur, it recommended price caps be placed on fixed wireless and satellite services. The panel also recommended the hybrid fibre-coaxial (HFC) network, crucial to the Abbott government’s multi-technology mix NBN plan, be owned and managed by an organisation other than NBN Co.

The Vertigan panel said the multi-technology approach would deliver net economic and social benefits A$16 billion greater than the fibre-to-the-premises option planned by the former government.

Stephen King, economics professor at Monash University, said the Vertigan panel had thrown the government a life preserver with its report.

“Currently, the NBN project is like the Titanic. It has hit the iceberg and is slowly sinking due to the illogical nature of the initial project design. The Vertigan committee has done an excellent job highlighting the main regulatory issues for the NBN.”

Professor King said the panel’s recommendation to make NBN pricing more flexible so the NBN could compete with private providers rather than relying on “anti-competitive rules” to cross subsidise uneconomic areas would allow competition in broadband to be “kick started”. He said disaggregating the NBN would also help boost competition.

“The recommendations also allow for transparent cross subsidies to areas that cannot be served economically,” he said.

The report recommends shifting the cost of subsidising broadband in regional areas onto the budget, and asking housing developers to pay NBN connection charges.

“As I have noted before, the current NBN is unsustainable economically. The Vertigan committee recommendations offer the government the opportunity to rescue the NBN and to put the NBN project on a secure financial footing.”

However, Allan Asher, who spent 13 years at the ACCC, said the report was disappointing and overlooked the competition lessons of the last decade and a half, not just in Australia, and not just in the telecommunications industry.

“The crippling weight of legacy of so many things - technology, policy, election promises and legislation doom this report to an incapacity to satisfactorily enhance the long-term interests of end users.”

Mr Asher said the idea of splitting NBN Co up into competing infrastructure providers was the same idea held in the 1990s, when competition was introduced to telecommunications.

“We had the spectacular failure when both Optus and Telecom Telstra went into the war of establishing all of the HFC lines and investments of billions which have largely been wasted. That was about a dash for market share and that’s exactly what would happen here.”

Malcolm Turnbull’s suggestion that now was not the time for a break up of NBN Co only had durability as long as Mr Turnbull was minister, Mr Asher said.

“You can see a dozen other ministers taking a much more aggressive role in that area.”

Mr Asher also said the report, and the Harper review report before it, failed to make the case for a new industry specific regulator.

“There was an industry specific regulator that singularly failed, leading to the transfer of the jurisdiction to the new ACCC in 1995.”

He said it would be quite destructive to hand over what would essentially be a huge amount of market power to industry players, and then overlay a brand new regulator that for some years wouldn’t have the capacity for enforcement of market power type breaches.

“Does that mean the ACCC has been doing a good job in this area? No, but it does have a credible machine for investigation and enforcement of the competition and consumer protection laws.”

Flavio Menezes, professor of economics at University of Queensland, said he was also not convinced a new regulator was the best way forward.

“Telecommunications regulation seems to demand some particular expertise as evidenced by the prevalence of telecommunications-specific regulators in most countries. However, one of the drawbacks of having an industry specific regulator is that it may be more prone to industry capture.”

He said an alternative would be to retain the current arrangements but enable the ACCC to further develop telecommunications-specific knowledge.

Professor Menezes said the report came from a “sensible position” given a major flaw of the labour government approach was to artificially introduce a monopoly on high-speed broadband provision to ensure that the NBN, as originally conceived, achieved a particular rate of return.

“Creating a government-owned monopolist in such a dynamic industry, where technology is changing rapidly, is a recipe for poor outcomes.”

The panel made a number of recommendations regarding law changes required to level the playing field for networks competing with NBN Co, including a legislated “infrastructure provider of last resort” obligation that would ensure should another provider fail to provide access to high-speed broadband, NBN Co would be obligated to do so.

Mr Turnbull said the government was consulting with industry on a “carrier licence condition” to address the competition issues of network providers that do not provide wholesale access to retail service providers undermining the level playing field for retailers.

The government will provide its full response to the report before the end of the year.

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